linrom Posted July 28, 2007 Report Posted July 28, 2007 Everyone is curious if the present market conditions portend a bear market. There are many market technicians who use various TA techniques to divine the future. Some use such things as cumulative A/D lines, oscillators, new high vs new lows, bullish sentiment, cycles, Elliott Wave etc. to glean into the future. However, just a simple analysis of magnitude of market declines could suffice. An overview of bear market periods from 1971 onward reveals common bear market development from periods of no volatility to periods of violent selloffs that ALWAYS precede bear markets. I have decided to use market decline percentage greater than -2.23% because it represents 3 x Std Deviation and ensures that only Panic sellofs --liquidations are considered. A mean market decline equals to .36% with a std deviation of .63%(which would account for about 2/3 of all declines.) The table below illustrates several bear market periods in US since 1971. Each bear market period is preceded by almost total lack of any events that are greater than 3 x std dev, or 2.23%. During these super bullish years at most 2 such periods occur(usually 1 in the spring and another in late summer or fall.) As the bull market matures, the incidence of panic selloffs increases and in ALL instances foreshadows bear markets. There were only two years where the number of panic selloffs exceeded two without developing into bear market. One was in 1980 during Iran Hostage Crisis and price of gold hitting $850, the other was in 1990 during Gulf War. Should we experience additional day of panic selloff greater than 2.23%, there is a good chance that we'll enter into bear market by next year. 594573[/snapback] Sorry Linrom but I don't understand your percentages...what are they....you can't mean a 2.23% down move period...could you? That kind of a move is miniscule so clearly I don't understand your terms here.....thanks in advance.. 594578[/snapback] Ah, maybe I can answer my own question...maybe you are referring to a 2.23% move in a single day........OK I get it... 594580[/snapback] You got it. I saw that later, and thought that the chart was not labeled sufficiently.
mmoy Posted July 28, 2007 Report Posted July 28, 2007 DOW close on the low tick and two consecutive days closing outside the previous days range just about confirms a rocket ride up Monday.Looking at the attatched chart, if not it certainly is different this time. 594552[/snapback] because of the security risk, please do not attach .doc or .xls files to your posts. Use graphic files or pdf only. Thanks. 594582[/snapback] I tried to take a picture of the chart which I saved under my pictures in windows but the site would not except it. Then I saved it in Word and posted it. Must be because the chart was from a premium stockcharts.com file. If I can not post it in the future I will just describe it. By the way security should not be an issue as I have the premium AVG system on my compucker. It is much better than Norton. 594587[/snapback] The security issue is that others can't trust the file. There are far fewer security issues in a browser rendering an image than there are in Word files. To my knowledge, the image exploits have been patched in current browsers for quite some time. One other problem is that users may not have Word installed on their computers.
mmoy Posted July 28, 2007 Report Posted July 28, 2007 One thing to note...Paulson goes to china tonight...either this meltdown in After hours was a setup for positive announcement between china and US or someone knows something bad is about to happen. What is odd is this drop in the SP futures will open the SPX cash market right near LeeWee's 1448-1452 support on Monday. 594543[/snapback] They'll ask Paulson to do something about this:
LeeWhee Posted July 28, 2007 Report Posted July 28, 2007 Its a new bull market..... 594593[/snapback] Here's a weird one. SDS, the double-inverse Spooz etf, debuted on July 12 2006. It rallied for a few days (the SPX fell) and made its' high on Tuesday July 18 2006 at 73.21. Exactly one year later, on Tuesday July 17 2007, it made a bottom at 49.00. Curious. Looks like July 2006 and July 2007 are mirror images of one another. If so, will the markits sell off until next July?
tdultima Posted July 28, 2007 Report Posted July 28, 2007 it may not be smart to stay long for the time being but its way too early to be calling it a bear market bear market based on what? one crappy week? any bears willing to short and hold for a year right here? because the bulls that went long and held one year ago made a lot of money its an intermediate top...nothing more nothing less until proven otherwise 594584[/snapback] Usually, I agree with you. But not this time. Take a look at longer term indicators. 594588[/snapback] still think it's too early to tell i'll most likely be a buyer at the next intermediate bottom only when that fails do i seriously consider any major short positions there's nothing wrong with being slightly late to the party assuming there is a party
lineup32 Posted July 28, 2007 Report Posted July 28, 2007 3 Billion Hedge Fund Is Down 10% for Year By JENNY ANDERSON Published: July 28, 2007 In a sign of the nervousness in the markets, the sale of a block of credit-related securities on Thursday led to speculation about the demise of a multibillion-dollar hedge fund. The fund, Sowood Capital Management, which in January had about $3 billion under management, is down 10 percent for the year, battered by credit markets that have hedge funds, their investors and their lenders on edge. Many traders pointed to the fund, with its substantial losses, as the first significant casualty of rocky credit markets. Sowood Capital was started in 2004 by Jeffrey B. Larson and Stuart Porter, both of whom worked for the Harvard Management Company, the university?s large endowment. Harvard seeded the fund, which invests in stocks and bonds, with a significant amount of capital, according to two people with knowledge of the fund?s operations. Speculation about problems at the fund abounded yesterday because of observations by market participants on Thursday that Sowood Capital was selling positions at distressed prices, traders said. While one person with knowledge of the fund?s operations said that the rumors were overblown and that Sowood Capital had met its margin calls, the situation is a telling example of the nervousness in the market. http://www.nytimes.com/2007/07/28/business...YPA&oref=slogin
mmoy Posted July 28, 2007 Report Posted July 28, 2007 Casey Serin is on nightline right now! 594600[/snapback] They closed with the FBI investigating him and with his lawyer indicating that they were expecting charges to be filed soon. I think that admitting RE fraud on your website and on TV is not the best way to go low-profile.
lineup32 Posted July 28, 2007 Report Posted July 28, 2007 You?ve gotta feel for him. John Devaney, United Capital?s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale ? for $23.5 million According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation?s largest living Christmas tree http://dealbook.blogs.nytimes.com/2007/07/...e-yacht-owners/
mdporter Posted July 28, 2007 Report Posted July 28, 2007 Casey Serin is on nightline right now! 594600[/snapback] They closed with the FBI investigating him and with his lawyer indicating that they were expecting charges to be filed soon. I think that admitting RE fraud on your website and on TV is not the best way to go low-profile. 594601[/snapback] That guy is just one loan fraudster amongst many, it will be interesting to see what happens to him. Hopefully his appearance will get posted onto Youtube.
Jetlag Posted July 28, 2007 Report Posted July 28, 2007 You?ve gotta feel for him. John Devaney, United Capital?s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale ? for $23.5 million According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation?s largest living Christmas treehttp://dealbook.blogs.nytimes.com/2007/07/...e-yacht-owners/ 594602[/snapback] The bottom 99% must feel a lot for him. First for helping drive up the cost of living (negative savings will hurt, later than sooner, but they will) and now for helping the US economy go into recession over the housing bust. nothing wrong with being successful if you get there fair and square.
linrom Posted July 28, 2007 Report Posted July 28, 2007 You?ve gotta feel for him. John Devaney, United Capital?s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale ? for $23.5 million According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation?s largest living Christmas treehttp://dealbook.blogs.nytimes.com/2007/07/...e-yacht-owners/ 594602[/snapback] This is the link to Windy's original post about this guy back on April 12, As Subprime Market Implodes, a Contrarian Prospers Link Here are some juicy excerpts from the original NY Times article that might require free registration? NYT , As Subprime Market Implodes, a Contrarian Prospers, 4/12/2007 More news disinformation He certainly got his wish. Within a month of his remarks, several big lenders to people with weak credit ? specialists in what is known as the subprime market ? began collapsing. And as a number of big players swoop in, hoping to make a killing while cleaning up the mess Mr. Devaney, 36, has amassed a fortune he estimates at $250 million by becoming a major dealer in asset-backed bonds through his company, United Capital Markets. As the powerfully fickle market has gone through several giddy booms and wrenching shake-ups in the last decade, he and other nimble traders in a small fraternity of investors have been able to profit handsomely by taking advantage of the market?s wide swings. Asset-backed securities have become an important source of capital for consumer and business debt, generating fortunes on Wall Street. But despite remaining a relative outsider, Mr. Devaney has done very well indeed. Mr. Devaney said he first realized he could profit from the market?s flaws in 1998, when investors rushed out of risky bonds after the hedge fund Long-Term Capital Management buckled and Russia defaulted on its debts. Unnerved by those crises, many investors dumped bonds backed by aggressive home equity loans made to people with good credit. ?It was just like it is now: ?Oh! Oh! Another news tidbit of New Century news. Oh, my god!? ? he said in a mockingly hysterical tone, referring to the mortgage company that has filed for bankruptcy protection. From the prospectuses for those securities, Mr. Devaney divined that bondholders would get their money back even if 30 percent of the homeowners defaulted on their loans. He bought the bonds for 50 cents on the dollar for himself and for clients. As the scare faded and it became apparent that homeowners would not default in big numbers, he sold for handsome profits. It was a formula he has used time and again ever since. Investors in subprime bonds believed they would be protected by losses because of how the securities were structured. So far, most have been, but Mr. Devaney and others believe that the holders of some bonds could be hurt as defaults rise further. He hopes to profit from their loss. Asset-backed bonds are sliced into several segments, each with its own risk rating ? AAA, BBB, BB and so on. Investors in the top grades earn a lower interest rate but are paid first. Those at the bottom earn a bigger return, but if too many homeowners miss payments, they are left holding an empty bag. The AAA segment typically makes up the biggest portion of the securities, but it could not exist if enough investors were not willing to buy lower-quality portions. It is in those subordinated segments that Mr. Devaney operates. He manages a hedge fund that has $620 million in assets and that had an estimated return of 40 percent last year. His nascent investment-banking business recently became the financial partner for a five-million-square-feet condominium project near Boca Raton.Mr. Devaney?s ambitions are big. He hopes eventually to take United Capital public and raise money in a corporate bond offering so he can have a steady source of capital. Last year, the firm traded $29.9 billion in asset-backed securities and earned net income of $90 million. While I can't accuse NYT of direct manipulation, this article has served its purpose very well. It has created an impression that subprime risk is quite normal and has existed in similar forms for quite sometime and while some individuals will lose money, if you are smart like Mr. Devaney, you could even profit from it. But, perhaps the biggest omission in this article is that it does not mention that firms like United Partners use leverage to maximize their returns (40% similar to Blackstone.) You have to wonder how many people fell for this advertisement Mr. Devaney wanted to do an IPO, and probably become another instant billionaire, and this is the same guy that after graduating from college put all his savings on $120,000 option bet, and lost it all. How many guys like that are out there--- one of them even runs this country.
Slappy Posted July 28, 2007 Report Posted July 28, 2007 John Mauldin's Weekly E-Letter this week covers a lot of this same territory. ..... And the credit markets are changing their opinion in a very rapid manner. Earlier this spring, the credit markets started to get concerned about subprime mortgages. But "everyone" said it would not spread to the rest of the credit markets, so there was no cause for concern. I was not so sanguine. I have consistently thought that the entire credit markets would be affected, through a tightening of credit standards. And now the markets are starting to agree. Let's look at a few charts, and then think through the opportunities, especially in the high yield space. Let's first look at the BBB paper in the mortgage markets. It is now trading at less than $.38 cents to par (100), and that chart is still pointing down. Catch a falling knife, anyone? The Subprime Virus But that is just the subprime stuff, John. A few weeks ago, no one thought it would spread. But spread it has. And spread is the correct word. Spreads on high yield bonds have widened. By spreads I mean the difference, or spread, between the yield on a bond and its corresponding yield on a government bond (of the same time frame). If a high yield bond had a spread of 300 basis points, or 3%, then it would be yielding 3% over the government bond. Let's look at this next chart, which is the spread on credit default swaps on high yield bonds. Note that the spread has risen from below 250 basis points as recently as early June to almost 500 basis points this morning. That also means that high yield bonds have dropped in value by almost 9% from the high, which was slightly over par less than two months ago! In other words, less than two months ago, the average trader and manager did not think there was any risk in the high yield space, or at least there was historically less risk than at any other time in history. So, let's look at the next chart to put this into perspective. Let's look at this chart from Bear Stearns (courtesy of good friend, business associate and high yield maven Steve Blumenthal of CMG) which shows high yield spreads for the last almost 20 years. Now, this is a different index than the Markit CDX high yield, with different underlying bonds, but the point is to show that even though yields have almost doubled, they are still not all that high by historical standards. Now, even if you take out the ugly periods in 2001-2 which were caused by Enron, WorldCom, etc. it would still take another sharp rise just to get back to the average yield spread. ..... More on John Mauldin... I'm no bond guru but from what I can make out here, in the bond market the music has stopped and most everyone has a seat. And they are sitting on their hands. And they are prepared to sit for quite a while longer.
LeeWhee Posted July 28, 2007 Report Posted July 28, 2007 You?ve gotta feel for him. John Devaney, United Capital?s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale ? for $23.5 million According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation?s largest living Christmas treehttp://dealbook.blogs.nytimes.com/2007/07/...e-yacht-owners/ 594602[/snapback] This is the link to Windy's original post about this guy back on April 12, As Subprime Market Implodes, a Contrarian Prospers Link Here are some juicy excerpts from the original NY Times article that might require free registration? NYT , As Subprime Market Implodes, a Contrarian Prospers, 4/12/2007 More news disinformation He certainly got his wish. Within a month of his remarks, several big lenders to people with weak credit ? specialists in what is known as the subprime market ? began collapsing. And as a number of big players swoop in, hoping to make a killing while cleaning up the mess Mr. Devaney, 36, has amassed a fortune he estimates at $250 million by becoming a major dealer in asset-backed bonds through his company, United Capital Markets. As the powerfully fickle market has gone through several giddy booms and wrenching shake-ups in the last decade, he and other nimble traders in a small fraternity of investors have been able to profit handsomely by taking advantage of the market?s wide swings. Asset-backed securities have become an important source of capital for consumer and business debt, generating fortunes on Wall Street. But despite remaining a relative outsider, Mr. Devaney has done very well indeed. Mr. Devaney said he first realized he could profit from the market?s flaws in 1998, when investors rushed out of risky bonds after the hedge fund Long-Term Capital Management buckled and Russia defaulted on its debts. Unnerved by those crises, many investors dumped bonds backed by aggressive home equity loans made to people with good credit. ?It was just like it is now: ?Oh! Oh! Another news tidbit of New Century news. Oh, my god!? ? he said in a mockingly hysterical tone, referring to the mortgage company that has filed for bankruptcy protection. From the prospectuses for those securities, Mr. Devaney divined that bondholders would get their money back even if 30 percent of the homeowners defaulted on their loans. He bought the bonds for 50 cents on the dollar for himself and for clients. As the scare faded and it became apparent that homeowners would not default in big numbers, he sold for handsome profits. It was a formula he has used time and again ever since. Investors in subprime bonds believed they would be protected by losses because of how the securities were structured. So far, most have been, but Mr. Devaney and others believe that the holders of some bonds could be hurt as defaults rise further. He hopes to profit from their loss. Asset-backed bonds are sliced into several segments, each with its own risk rating ? AAA, BBB, BB and so on. Investors in the top grades earn a lower interest rate but are paid first. Those at the bottom earn a bigger return, but if too many homeowners miss payments, they are left holding an empty bag. The AAA segment typically makes up the biggest portion of the securities, but it could not exist if enough investors were not willing to buy lower-quality portions. It is in those subordinated segments that Mr. Devaney operates. He manages a hedge fund that has $620 million in assets and that had an estimated return of 40 percent last year. His nascent investment-banking business recently became the financial partner for a five-million-square-feet condominium project near Boca Raton.Mr. Devaney?s ambitions are big. He hopes eventually to take United Capital public and raise money in a corporate bond offering so he can have a steady source of capital. Last year, the firm traded $29.9 billion in asset-backed securities and earned net income of $90 million. While I can't accuse NYT of direct manipulation, this article has served its purpose very well. It has created an impression that subprime risk is quite normal and has existed in similar forms for quite sometime and while some individuals will lose money, if you are smart like Mr. Devaney, you could even profit from it. But, perhaps the biggest omission in this article is that it does not mention that firms like United Partners use leverage to maximize their returns (40% similar to Blackstone.) You have to wonder how many people fell for this advertisement Mr. Devaney wanted to do an IPO, and probably become another instant billionaire, and this is the same guy that after graduating from college put all his savings on $120,000 option bet, and lost it all. How many guys like that are out there--- one of them even runs this country. 594605[/snapback] That article had more red flags than one of those old May Day parades in Moscow. Losing his ass on financial riverboatin' at a young age? Check. Hubristic mocking of the notion of risk? Check. Investing in a giant Boca Raton condo project in the midst of a housing meltdown? Check. Ostentatious mega-yacht with "cute" girlebull moniker? Check. Planning to take his gambling operation public to make an even bigger "score"? Check. Guys like this are a dime a dozen during market environments like we've been in. Gamblers and riverboaters are rewarded handsomely, while those who are cautious or "old school" investors underperform. You can see this in the chart of how "quality" companies (as determined by S&P) have performed vis-a-vis lower-rated companies and also in how junk debt has outperformed higher-quality debt. This has been going on for years and is unsustainable. Ultimately, folks like Devaney overextend themselves, thinking they are bulletproof, and then cometh the fall. As Buffett writes, "You find out who's been swimming naked when the tide goes out." No surprise to learn he lost big on his first options trade when he started out in finangler riverboatin'. Once a gambler, always a gambler. It's like when you read about some horrible serial killer and learn that he liked to stick firecrackers up cats' asses as a kid. Once a sociopath, always a sociopath. I don't know whether the markits have turned bearish or whether this is just a scary patch. But given the kind of nonsense we've been reading about these BSDs over the past few years, who mistake gambling for investing, it's probably a good time to thin the herd a bit.
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